Bowerman v. Wal-mart Stores

• Decision Date: 18 August 2000
• Docket Number: No. 98-4130,WAL-MART,98-4130
• Citation: 226 F.3d 574
• Parties: (7th Cir. 2000) TAMYRA S. BOWERMAN, Plaintiff-Appellee, v.STORES, INCORPORATED and ASSOCIATES' HEALTH AND WELFARE PLAN, Defendants-Appellants
• Court: U.S. Court of Appeals — Seventh Circuit

Page 574

226 F.3d 574 (7th Cir. 2000)

TAMYRA S. BOWERMAN, Plaintiff-Appellee, v. WAL-MART STORES, INCORPORATED and ASSOCIATES' HEALTH AND WELFARE PLAN, Defendants-Appellants.

No. 98-4130

In the United States Court of Appeals For the Seventh Circuit

Argued September 24, 1999

Decided August 18, 2000

Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. 96 C 1380--Larry J. McKinney, Judge. [Copyrighted Material Omitted]

[Copyrighted Material Omitted] Before BAUER, RIPPLE and DIANE P. WOOD, Circuit Judges.

RIPPLE, Circuit Judge.

From October 1993 until July 1995, and then from August 1995 until September 1996, Tamyra Bowerman was employed by Wal-Mart Stores, Inc. ("Wal-Mart"). As a full- time employee of Wal-Mart, Ms. Bowerman was entitled to participate in a Wal-Mart-sponsored and -maintained employee welfare benefit plan called the Wal-Mart Stores, Inc. Associates' Health and Welfare Plan ("the Plan"). While she was employed at Wal-Mart, Ms. Bowerman elected to obtain her medical insurance coverage through the Plan.

The present lawsuit between Ms. Bowerman and Wal-Mart stems from the Plan's decision not to pay nearly $12,000 in medical expenses related to Ms. Bowerman's pregnancy. Ms. Bowerman contends that the Plan should have paid these expenses. The Plan concedes that expenses incurred due to a pregnancy ordinarily would be covered by the Plan. Nevertheless, the Plan maintains that, because of the one-month hiatus in her employment at Wal-Mart in 1995, Ms. Bowerman's pregnancy must be treated as a pre-existing condition that the terms of the Plan exclude from coverage.

Ms. Bowerman brought this suit under the civil enforcement provision of the Employment Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. sec. 1132. After a bench trial, the district court rendered a decision for Ms. Bowerman and ordered Wal-Mart to cover Ms. Bowerman's pregnancy-related claims. The court further ordered Wal-Mart to improve its explanations in its plan documents, and it awarded Ms. Bowerman attorneys' fees. For the reasons set forth in the following opinion, we affirm, as modified, the judgment of the district court.

I BACKGROUND

A. The Wal-Mart Plan

The Wal-Mart Plan is a single-employer, unfunded plan governed by ERISA. Eligible Wal-Mart employees may participate in the Plan's medical benefit program. The Plan's Administrative Committee (the "Administrator") acts as its administrator and fiduciary, and, according to the terms of the Plan, the Administrator has discretionary authority "to resolve all questions concerning the administration, interpretation, or application of the Plan." R.28, Ex.1 (1995 SPD) at Q-2. Furthermore, the Administrator has the sole power to amend the terms of the Plan, and all amendments must be made in writing.

These aspects of the Plan, along with other important Plan provisions, are explained in the annual Associate Benefit Book, also known as the Summary Plan Description ("SPD"). Each newly- hired employee receives a copy of the then- current SPD, and, thereafter, Wal-Mart's annual distribution of new SPDs to each employee coincides with the effective date for the SPDs. The relevant SPD for this litigation is the 1995 SPD. The 1995 SPD directed Plan participants who had questions regarding their benefits to contact a Plan service representative at designated telephone numbers.

At all times relevant to this litigation, and as explained in the 1995 SPD, the Wal-Mart Plan subjected new full-time employees to a 90-day waiting period before they were eligible for benefits. Furthermore, newly-hired employees could not obtain benefits for charges related to "pre-existing conditions" until the new employees had been covered by the Plan for 12 consecutive months.¹ When employees ended their employment at Wal-Mart, they would lose their Plan benefits on the last day they worked.²

For those Plan participants who became ineligible for benefits because their employment had been terminated, the Plan's 1995 SPD informed them that they could obtain continuation of coverage as provided under the Consolidated Omnibus Budget Reconciliation Act ("COBRA"), 29 U.S.C. sec. 1161 et seq. According to the 1995 SPD, a participant had 60 days from the date the COBRA notification form was mailed to the employee to elect COBRA coverage. The 1995 SPD explained to participants that, if they chose COBRA coverage, they could continue that coverage for up to 18 months. Additionally, the 1995 SPD explained that COBRA coverage would terminate upon the occurrence of certain events, one of which was a participant's failure to pay the premium within 30 days of its due date.

In addition to these rather standard plan attributes, the Wal-Mart Plan had a distinctive feature. When employees of Wal-Mart terminated their employment but then returned to work for the company within 12 months, the Administrator had a policy of allowing the returning employees to immediately "return" to the same medical coverage that they had had before leaving the company. The Plan's 1995 SPD explained this feature of the Plan to Wal-Mart employees in these terms:

If you are rehired, reinstated to full-time employment, or are cancelled for non-payment of premiums, and you return to work in less than 12 months from the end of coverage, you will automatically receive the same benefits you had before. You will not have a 90-day wait for benefits, but pre-existing condition limitations will apply.

R.28, Ex.1 (1995 SPD) at C-3. Under this provision, the Administrator would ignore the interruption in employment, and the rehired employees would not be subjected to the 90-day waiting period for coverage to begin. For purposes of the pre-existing condition limitation, however, the Plan would not overlook the interruption in employment; the Plan would apply the year-long pre-existing condition limitation against rehired employees who had a break in their coverage under the Plan. Notably, however, the 1995 SPD never informed the employees that fully paid COBRA coverage would constitute continuous coverage and thus obviate the 12 month pre-existing condition limitation.

B. Facts

Ms. Bowerman enrolled in the Wal-Mart Plan when she began working at the Wal-Mart Photo Lab in Crawfordsville, Indiana, in October 1993. As a newly-hired employee, Ms. Bowerman was subject to the Plan's 90-day waiting period for medical benefits. Ms. Bowerman's medical coverage under the Plan became effective on January 11, 1994. She was also subject to the Plan's pre-existing condition limitation.

On July 20, 1995, Ms. Bowerman quit her job at Wal-Mart in order to take another position with a different company. During her exit interview, Ms. Bowerman obtained information about continuing her medical coverage by electing COBRA coverage, and, either at the exit interview or shortly thereafter, Ms. Bowerman also received a "NOTICE OF RIGHT TO CONTINUE COVERAGE (COBRA)" and a COBRA enrollment form from Wal-Mart. Dist. Ct. R. Stipulated Ex.2 at 10. The COBRA notice was written in a question and answer format, and stated in part:

When do you pay for the coverage? PLEASE DO NOT SEND A PAYMENT NOW!!

If you elect coverage, you will owe premiums back to your qualifying event date. Once you have been enrolled, we will mail you a payment book to submit payments by. Your first payment will bill you from your event date through the month in which we enroll you for COBRA. IT COULD BE MORE THAN ONE MONTHS PREMIUM! This payment will be due 45 days from the due date shown on your payment book. Every month thereafter you will make your normal monthly payment which is due on the first of each month. . . .

Id. The notice also stated that COBRA coverage would end "[t]he first day for which timely payment is not made to the Plan." Id. The 1995 SPD provided that COBRA coverage would be terminated if the COBRA premium was not paid within 30 days of the due date.

At the time she quit her job at Wal-Mart on July 20, Ms. Bowerman was unaware that she was nearly one month pregnant. Later, on August 8, Ms. Bowerman went to her physician's office to have a pregnancy test performed. A medical technician administered a test similar to a home pregnancy test, and, from the results of this test, Ms. Bowerman learned that she was pregnant. Ms. Bowerman never saw her physician during this visit to his office, but the results of her pregnancy test were placed in her medical file. The district court specifically found that the test administered to her could have been conducted at home without the assistance of a medical provider, and if the test had been self- administered, the pregnancy would not have been considered a pre-existing condition under the Plan.

A few days after having the pregnancy test performed, Ms. Bowerman filled out her COBRA enrollment form and later mailed it into the Plan's COBRA department. The Plan received the form on August 23 and then generated a coupon book for Ms. Bowerman's payments.

Because she found her new job to be more strenuous than her job at Wal-Mart, Ms. Bowerman returned to the Wal-Mart Photo Lab on August 14, 1995, and asked to be rehired. She also informed the employees at the Photo Lab that she was pregnant. Her former boss rehired her on the spot, but, because Ms. Bowerman had been feeling ill that week, they both decided she should wait until the following Sunday to start work. On August 20, 1995, Ms. Bowerman began working at Wal-Mart again, and this date became her official rehire date.

When Ms. Bowerman returned to work at Wal-Mart on August 20, her need for COBRA coverage ended because, as an employee who returned to the company within 12 months, Ms. Bowerman could take advantage of the Administrator's special rehire policy. On August 20, the day Ms. Bowerman began working again for Wal-Mart, the Plan immediately restored her medical coverage and resumed deducting medical benefit premiums from...